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Climate risks cost 1.5 percent of GDP annually

By Abee Fikir

The Ethiopian Capital Market Authority is weighing the introduction of ‘green financing instruments’ in a bid to raise funding for climate resilience programs.

Experts at the Authority and Financial Sector Deepening (FSD) Ethiopia have conducted a feasibility study evaluating the viability of such a market in Ethiopia.

During a presentation on Friday, the experts noted that Ethiopia’s primarily agricultural economy is highly vulnerable to climate risks, which currently cost between one and 1.5 percent of GDP annually (approximately USD two billion). The figure is forecasted to grow to five percent by the 2040s, according to the report.

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Ethiopia’s Nationally Determined Contribution (NDC) for climate action requires USD 316 billion to achieve a 68.8 percent emission reduction target by 2030.

Additionally, around 20 percent of Ethiopia’s land is degraded, costing over USD 4.3 billion each year, highlighting the need for sustainable land management. Ethiopia ranks 38th on the global climate vulnerability index.

The proposed green financing market aims to mobilize USD 2 billion in financing by 2030 through initiatives like green bonds and carbon credits.

Ethiopia accessed USD 1.9 billion in climate finance between 2021 and 2022, with almost half of the total allocated to climate policy adoption efforts. The government has secured just USD 300 million for climate action this year, falling far short of the USD 300 billion experts estimate is required to limit greenhouse gas emissions to 150 tons by 2030.

More than 90 percent of the funding comes from international sources.

Carbon credits, with prices ranging from five to USD 10 per ton, are a growing market supported by the country’s significant carbon sequestration potential.

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